Bitcoin is hot right now. It is known as a crypto-currency, but has the potential to be applied to far more than exchanging value. Bitcoin is a protocol, one that many consider the next great protocol for the Internet and the emerging Internet of Things. As advanced applications are developed that leverage the capabilities that make Bitcoin possible, enterprise technologists will be able to tap into new capabilities for security and functionality.
CTOvision will cover more on Bitcoin and related technologies in our new Cryptocurrency category with our focus on helping enterprise executives understand the power of this new capability. We will begin with the basics and then move into real-world examples designed to help you better leverage the functionality.
In this post we start with a bitcoin introduction and a level setting on the proper user of terms.
Bitcoin is many things. From a user perspective it can be seen as cash on the Internet. You can trade it for other traditional cash, or you can buy products and services or you can just hang onto it. More precisely, bitcoin is a digital asset and a payment system. It was invented by Satoshi Nakamoto, who published the invention in 2008 and released it as open source software in 2009. The system is peer to peer, so users can transact directly without an intermediary. Transactions are verified by a network of nodes and recorded in a public distributed ledger called the blockchain. The bitcoin is the unit of the ledger. The design of this system operates without a central repository, making it a decentralized virtual currency.
There have been other attempts at virtual currencies in the past, but they all faced challenges. One of the biggest challenges of a crypto currency is the issue of double spending. If a virtual coin is just a token or a file it can be duplicated it can be spent twice, or even more. This is of course an untenable situation. Bitcoin’s innovation was to mitigate this issue by use of the Block Chain. The block chain is a public ledger of transactions where each transaction is verified by an extensive, decentralized network of computers.
The user-end of Bitcoin is a digital wallet. This computer program provides the user with an ability to send and receive bitcoins. The simplicity of the wallet is a strongpoint, but behind the scenes the bitcoin network is ensuring the currency works by maintaining the blockchain ledger. This ledger contains every transaction ever processed, allowing a user’s computer to verify the validity of each transaction. The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses, allowing all users to have full control over sending bitcoins from their own bitcoin addresses. In addition, anyone can process transactions using the computing power of specialized hardware and earn a reward in bitcoins for this service. This is called bitcoin “mining.”
More on Bitcoin Mining:
Mining is the process of spending computing power to process transactions, secure the network and keep everyone in the system synchronized together. It can be thought of as the bitcoin datacenter, but there is no datacenter. It is a fully distributed/decentralized system with miners operating in all countries and no individual having control over the network. The process is referred to as mining to make the analogy to gold mining, since it is also a way to issue new bitcoins.
Why would you want to use bitcoin?:
Users of bitcoin are provided with enhanced security and control. There have been many cases of fraud and loss of bitcoin, but in each of those cases we know about it is because users trusted others inappropriately. Bitcoin users are really in full control of their transactions. But if a user accidentally deletes their keys and have not made a hard copy backup they will be lost. And they can be stolen if left unguarded. This is similar to real cash. Protect your cash. Fortunately, with bitcoin, you can learn sound security practices to protect the money. Additionally, it is impossible for merchants or others to force an unwanted transaction like can happen with other payment means. And bitcoin payments can be made without personal information tied to the transaction. This helps protect against identity theft. Bitcoins also offer more payment freedom. Payment can be sent and received anywhere in the world at any time.
But perhaps even more important than why you would use bitcoin is why you should know how it works. The blockchain is quite impressive, and new apps are being established to leverage this mechanism. We will be exploring the blockchain in more detail in coming posts.
Our next post will be on CoinBase, a great way to get started learning about Bitcoin. Coinbase is an online bitcoin wallet and platform that both merchants and consumers can use for transactions. It is absolutely the easiest onramp to the bitcoin economy and creating an account is free, fast and secure. Do it here: CoinBase . We also refer you to this overview on The Clearest Explanation of Cryptocurrencies You Will Ever See.
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